Management, Procurement and Law

Design development post contract signing - client or contractors cost?--Manuscript Draft--

Manuscript Number: MPL-D-18-00044R3

Full Title: Design development post contract signing - client or contractors cost?

Article Type: Paper - Law

Corresponding Author: David Finnie, MConstr. (Construction Law), BConstr (QS)Otago PolytechnicDunedin, Otago NEW ZEALAND

Corresponding Author SecondaryInformation:

Corresponding Author's Institution: Otago Polytechnic

Corresponding Author's SecondaryInstitution:

First Author: David Finnie, MConstr. (Construction Law), BConstr (QS), GCTLT,

First Author Secondary Information:

Order of Authors: David Finnie, MConstr. (Construction Law), BConstr (QS), GCTLT,

Naseem Ameer Ali, PhD Civil Engr, MSc Const Law & Arb, MSc Arch, BSc

Kenneth Park, PhD, MSc, BSc,

Order of Authors Secondary Information:

Abstract: By offering fixed price contracts for designs supplied by clients, contractors legallywarrant that they can build what has been designed and do so within their fixed price.Yet detailed drawings are often issued during construction in response to contractors’requests for information on the basis that they cannot otherwise build what has beendesigned. Claim entitlement decisions are often made by construction professionals(Architects, Engineers, Quantity Surveyors) without legal training in contractualinterpretation, potentially varying who pays for design development after contractsigning, contractors or clients. Prior studies have addressed buildability obligationsrelating to ground conditions and foundations. This study applies key principles ofcontract law to consider who should pay for instructed drawing details post contractsigning under of New Zealand Standard NZS3910:2012 Conditions of Contract forBuilding and Civil Engineering Construction in terms of (i) when a variation claim maybe accepted; (ii) effect of contractor involvement in design development; and (iii) effectif claimed from a building subcontractor to a consultant manager (no head contractor).A claim entitlement flowchart and a table comparing head contractor and consultantconstruction manager obligations provide practical guides for contract administrators.Findings may help contract drafters toward removing ambiguity from contracts.

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Design development post contract signing - client or contractors cost?

Author 1

● David Finnie, MConstr (Construction Law) with distinction, BConstr (QS), GCTLT, Dip QS,

MNZIQS, MNZIOB, Chartered Building Professional, LBP (Site 2 & Carp), Principal Lecturer

in College of Engineering, Construction and Living Sciences, Otago Polytechnic, Dunedin,

New Zealand

● ORCID number: orcid.org/0000-0002-1206-2124

Author 2

● Dr. Naseem Ameer Ali, PhD Civil Engr (Univ of Auckland), MSc Const Law & Arb (Kings

College London), MSc Arch: Building Econs & Mgt (University College London), BSc (Hons)

QS (Reading), CDipAF, Cert Adj (RICS), Cert Adj (KLRCA), PPRISM, FRISM, FCIOB,

FCIArb, MNZIQS, MRICS, MAPM, AIQS (Affil), Reg QS (NZ), Reg QS (M’sia), Chartered

Quantity Surveyor (UK), Registered Quantity Surveyor (NZ & M'sia), Chartered Construction

Manager (UK), Accredited Mediator (CIDB, M'sia), Panel Adjudicator (KLRCA & RICS),

Senior Lecturer in Quantity Surveying School of Engineering and Advanced Technology,

Massey University, New Zealand

● ORCID number

Author 3

● Dr. Kenneth Park, PhD, MSc, BSc, FHEA, MCIOB, MRICS, CCM, PMP, Senior Lecturer in

Construction, School of Engineering & Applied Science, Aston University, Birmingham, UK

● ORCID number: orcid.org/0000-0002-8406-3847

Full contact details of corresponding author.

Email: David.finnie@op.ac.nz

Phone: +64 3 479 6096 Ext 8096

Mobile: +64 21 396 1111

L Block Anzac Ave, Private Bag 1910, Dunedin 9054, New Zealand

Main text Click here to access/download;Main text;Design developmentclient or contractor cost.doc

2

Abstract (150 words)

By offering fixed price contracts for designs supplied by clients, contractors legally warrant that they can build what has been designed and do so within their fixed price. Yet detailed drawings are often issued during construction in response to contractors’ requests for information on the basis that they cannot otherwise build what has been designed. Claim entitlement decisions are often made by construction professionals (Architects, Engineers, Quantity Surveyors) without legal training in contractual interpretation, potentially varying who pays for design development after contract signing, contractors or clients. Prior studies have addressed buildability obligations relating to ground conditions and foundations. This study applies key principles of contract law to consider who should pay for instructed drawing details post contract signing under of New Zealand Standard NZS3910:2012 Conditions of Contract for Building and Civil Engineering Construction in terms of (i) when a variation claim may be accepted; (ii) effect of contractor involvement in design development; and (iii) effect if claimed from a building subcontractor to a consultant manager (no head contractor). A claim entitlement flowchart and a table comparing head contractor and consultant construction manager obligations provide practical guides for contract administrators. Identifying terms prone to interpretation informs contract drafters toward reducing ambiguity for contract users and therefore the potential for dispute.

Keywords chosen from ICE Publishing list

Keywords: contracts & law, procurement, project management

1. Introduction 1

This paper sets out to establish who pays for detailed design development once a fixed price 2

construction contract has been entered into under NZS3910:2013 Conditions of Contract for 3

Building and Civil Engineering Construction (Standards New Zealand, 2013). Consider this 4

scenario: A head contractor is employed through a fixed price construction contract to build a 5

new university block. During construction, they submit a request for information (RFI) requesting 6

further drawing details for particularly complex areas on the basis that they cannot otherwise 7

build what has been designed. The contract administrator (called an Engineer under 8

NZS3910:2013) issues drawing details. The head contractor then submits a variation claim for 9

the detailed work, including timber blocking, bolt fixings, flashings and seals. Research 10

objectives include establishing: 11

12

I. when the variation claim may be accepted; 13

II. effect of contractor involvement in design development; 14

III. effect if claimed from a building subcontractor to a consultant construction manager 15

(CCM) (i.e., no head contractor). 16

17

Claim entitlement has largely been decided by contract administrators who are lay-construction 18

professional (quantity surveyors, project managers, architects, engineers). However, until 19

recently, tertiary level construction qualifications have contained little or no content on contract 20

interpretation, effectively reserving such content to university law programmes across New 21

Zealand. Lay-readers may interpret written clauses (express terms) differently to those who 22

have studied the influence of implied terms that exist through case law precedent or legislation. 23

For example, general clause phrases, such as ‘anything reasonably unforeseeable by an 24

experienced contractor’ may appear to provide grounds for extending time due to delay caused 25

by the client. However, such clauses have been found ineffective by courts on that basis that 26

changing from the common law position (in this case that an act of prevention would constitute a 27

breach of contract not a variation to it) requires specific provisions to do so (Thomas and Wright, 28

2011). 29

2

30

Deciding whether drawings instructed during construction vary the contractor’s fixed price 31

contract is more complicated than when clients simply instruct scope changes. This is because, 32

the long held common law position is that, by offering a fixed price contract based on drawings 33

supplied by the client, the contractor legally warrants that they can build what has been 34

designed and do so for the fixed price offered. This is based on principles of contract law 35

including absolute liability, fitness for purpose and the inclusive price principle. Yet when 36

contractors request details during construction they are effectively doing so on the very basis 37

that they could not otherwise build what has been designed. Key considerations include, 38

whether the contract might be deemed frustrated on the basis that the design problem was 39

reasonably unforeseeable and performance would otherwise be impossible without doing the 40

work, therefore entitling the contractor to claim costs outside of the of contract, whether the 41

detail corrects a design documentation error, and whether any costs could have been mitigated 42

by the contractor warning in advance. A further complication is designers being found negligent 43

for their drawings lacking ‘buildability’, in case law and under the New Zealand Licensed 44

Building Practitioner (LBP) scheme. 45

46

This is particularly topical in New Zealand as more detailed drawings are being instructed after 47

contract signing. Growth across the sector has seen contractors entering fixed price contracts 48

based on incomplete designs and contract terms, that were standard form, now often amended 49

in order to transfer greater risk onto contractors. Incomplete drawings have been found a 50

dominant source of contract variations and contractor tender risk amongst Australian 51

contractors (Tower and Bacarini, 2008). The risk transfer onto both contractors and consultants 52

in New Zealand has been described as reaching ‘inequitable’ levels (NZIQS, 2019) and there 53

are calls for better risk equity and greater focus on risk training across the construction industry 54

(NZIOB, 2019). This follows major players existing the sector, including Fletcher Construction, 55

Mainzeal and Ebert Construction (Harris, 2018). 56

57

The introduction of early contractor involvement (ECI) further complicates design obligations, 58

when contractors or consultant managers provide early input into design buildability. The entity 59

3

responsible for managing construction may be employed through a head construction contract 60

or a contract for services. A contract for services is used where the client employs trade 61

contractors directly. Alternatively, a hybrid of first-stage services contract and second-stage 62

head contract may be used for 2-stage early contractor involvement 2S-ECI (Finnie, Ameer Ali, 63

Park, 2018; Whitehead, 2009). 64

65

2. Research methodology 66

The implied liabilities of contractors entering fixed price contracts are examined in terms of how 67

they may influence interpretation of NZS3910:2013 when deciding claims for design 68

development post-contract signing. A flowchart for aiding claim entitlement decisions is 69

provided. Then head contractor and consultant manager liabilities are compared at common 70

law, with a tabulated comparison of the two. 71

72

While design buildability obligations have been considered for ground conditions and 73

foundations (Dennys and Clay, 2015; Rosenberg, 2012; Bailey, 2007; Walton, 2007), there is an 74

absence of literature specific to detailed design development. Few legal precedents exist, with 75

disputes generally negotiated or referred to adjudication or arbitration where outcomes remain 76

private. Similarly, few precedents exist specifically relating to the construction management 77

procurement pathways where the client employs a CMM. Therefore, cases related to 78

contractor’s liability for design buildability are applied through analogy. Similarly, cases related 79

to project managers and contract administers are considered for CMMs. Legal commentary is 80

also applied from respected textbooks and published papers. According to Chynoweth (2008) 81

analogy is the common tool for legal scholar research and (p30) legal scholarship involves 82

developing ‘scholastic arguments for subsequent criticism and reworking by other scholars, 83

rather than any attempt to deliver results which purport to be definitive and final.’ This paper is 84

not intended as legal advice. 85

86

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3. Contractor claim entitlement 87

5.1 Common law position - Absolute liability and the inclusive price principle 88

89

The New Zealand Courts have so far followed the UK in holding building contractors strictly 90

liable for design buildability. According to Walton (2007, p210), a NZ barrister, ‘the common law 91

position is that, without an express provision to the contrary, ground condition risk rests with the 92

contractor like any other physical condition or buildability issue.’ The contract administrator must 93

decide whether the contractor should have allowed sufficient costs for the newly detailed work 94

within their fixed price, or whether the detailed work is sufficiently different to constitute a 95

variation to the contract. The distinguishing point is that the contractor should have included for 96

all costs necessary to complete the works, even if not specified on the drawings. This is the 97

‘inclusive price’ principle. If the drawing is considered within the contractor’s inclusive price, it 98

may be instructed as a variation ‘for the contractor’s convenience’ without additional time or cost 99

(see Dennys and Clay, 2015, p402). Though, the extent of application ultimately depends on the 100

interpretation of the contract and specified scope (see Dennys and Clay, 2015, 3-064). 101

Therefore, the contractor may not automatically be entitled to costs of additional materials 102

shown in detailed drawings instructed after contract signing. The contractor’s absolute liability is 103

not necessarily reduced by the client providing a schedule of quantities. While the contractor 104

may rely on the accuracy of the SOQ aligning with the drawings (unless the SOQ disclaims 105

liability), this may not reduce the contractor’s absolute liability for unforeseen circumstances. In 106

Workshop Tarmacadam v Co Ltd Hannaby (1995) a contractor’s claim for additional quantities 107

due to encountering hard rock was rejected, despite the contract containing a re-measurement 108

clause. Russell LJ said it would have been the ‘easiest thing in the world’ for the plaintiffs to 109

make a specific provision for dealing with ‘unforeseen conditions being encountered’, had they 110

chosen to. The main relief at common law is if the contract becomes impossible or radically 111

different (frustrated). 112

113

The case of Wilkinson and Davies Construction Co Ltd v Geraldine Borough (1958) provides an 114

example of a building contractor being held liable for both the original and re-design of a 115

concrete tank chamber after the original design was abandoned midway through construction. 116

5

The contractor argued that a contract for sinking a sewage tank became wholly inapplicable 117

after uncovering ground conditions that made excavation impossible and the designed pump 118

system (44 gallon or even 400-gallon drum) unworkable due to the volume of ground water, so 119

not buildable as designed. However, the High Court in Wellington, followed the UK case of 120

Tharsis Sulphur and Copper Co Ltd v M’Elroy and Sons (1878). in finding the contract was not 121

frustrated because performance remained possible. The tank could still be constructed albeit 122

using the different design methodology involving craning precast rings under water with a diver. 123

The contractor was therefore held to their contract obligations. In Tharsis, the contract specified 124

girder dimensions and, without written instruction to make the girders of thicker metal, the 125

contractor could not recover extra costs. Lord Blackburn stated that ‘When in this case, the 126

contractor says ‘We cannot do the works as we have promised to do it unless you permit us to 127

make it thicker than we undertook to make it’ and the engineer on behalf of the company says ‘I 128

will not object to your making it thicker if you cannot do it otherwise’, I think there is nothing in 129

that to imply that there was to be payment for the additional thickness.’ 130

131

Other examples of NZ courts applying a strict liability include Slowley v Lodder (1900) and The 132

Power Co Ltd v Gore District Council (1997). In Slowly the Court of Appeal followed Thorn in 133

finding that a local council owed no implied warranty against known latent defects, after a 134

previous contractor packed above a tunnel with brushwood and logs following a previous slip. 135

This led to a tunnel collapse when the new contractor carried out work. Instead, contractors 136

should make their own inquiries. The Power demonstrates parties’ freedom to contractually 137

agree their own risk allocations. A contract to supply power to the council for 1 penny per unit 138

for time hereafter, was upheld on the basis contracts are not frustrated just because they turn 139

out to be bad bargains. 140

141

The long established principle is that the client who provides drawings to the tenderer does not 142

warrant that the design is buildable (Bailey, 2007). Rather, it is the contractor who by submitting 143

a fixed price, legally warrants that they can build what has been designed and do so for their 144

price, even if unforeseen events make performance more difficult, including buildability 145

problems arising from engineer’s negligent design (Rosenberg, 2012, p16). Thorn v London City 146

6

Council (1876) is another early UK case where the contractor was held to an absolute liability 147

for design buildability when caissons failed to support the water pressure. Rosenberg (2012) 148

confirmed that both Thorn and Tharsis remain good case law. Building contractors align with 149

product manufacturers in that both must deliver a fit for purpose, defect free product (Burrows, 150

Finn and Todd, 2012). The principle of absolute liability, first established in Paradine v Jane 151

(1647) dictates that, by entering a contract to absolutely do something, the provider must do that 152

thing regardless of anything making the task more difficult (as opposed to a mere promise). As 153

an absolute liability, the client does not first have to establish negligence as they might with a 154

contract for services. 155

156

For design development, the contract administrator must decide to what extent the contractor 157

should have allowed for within their fixed price to compensate for incomplete drawings (inclusive 158

price principle). While no clear legal definition of design ‘buildability’ exists (see Benaim v 159

Davies, 2005), Rosenberg (2012, p2) suggests the following definition of ‘buildability design risk’ 160

incurred by contractors, being the allocation of: 161

162

deficiencies in the permanent works design which make it more time consuming or 163

costly (or even impossible) during the construction phase to build to the specifications 164

and drawings.’ (Underlining by author). 165

166

This suggests that the contractor must include sufficient costs to complete the works, including 167

the for the permeant building works. NZS3910:2013 clearly requires contractors to allow for 168

costs both temporary permanent, whether specified or ‘inferred’ from the contract. 169

170

NZS3910:2013 Clause 5.1.1 General responsibilities 171

In carrying out the Contract Works the Contractor shall complete, handover to the 172

Principal, and remedy defects in the Contract Works and provide all services, labour, 173

Materials, Plant, Temporary Works, transport, and everything whether of a temporary or 174

permanent nature required so far as the necessity for the same is specified in, or is to 175

be inferred from the contract. (Underlying by author) 176

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177

Under NZS3910:2013, Contractors may be entitled to costs for drawings when they are 178

instructed to resolve matters relating to 9.5 Unforeseen physical conditions or 5.13 Underground 179

and above-ground utilities. However additional costs may be deemed within the contractor’s 180

inclusive price when the drawings are instructed in response to the contractor’s request for 181

greater detail or a change to suit their methods. 182

183

SCENARIO: Under NZS3910:2013 Clause 5.1.1, the contractor is deemed to have included 184

all costs required to complete the works, both of a temporary and permanent nature, 185

including work specified in, and inferred from, the contract. Including for all works of a 186

‘permanent’ nature indicates that contractors must allow sufficient costs to compensate 187

where details may be lacking. Ultimately, the contract administrator must consider 188

whether the instructed detail is sufficiently similar in nature to be deemed included in the 189

contractor’s fixed price or different enough to constitute a contract variation. 190

191

5.2 Extent of the contractor’s ‘inclusive’ fixed price - Work similar or wholly different 192

The contract administrator may consider the extent of the contractor’s inclusive fixed price under 193

three main categories: 194

(i) No entitlement for instructions sufficiently similar in nature to the original scope that the 195

contractor should have allowed for all necessary costs, even if not specifically 196

shown; 197

(ii) Instructions sufficiently different to enable variation claims. According to Dennys and 198

Clay (2015, p403) absolute liability ‘will extend to variations, such as extra work, 199

which can be shown to be similar in general character to the contract work but may 200

not extend to unforeseeable variations which are different in character or location’; 201

and 202

(iii) Instructions wholly outside the contract itself, which could be refused or performed for 203

rates outside the contract (quantum meruit). Dennys and Clay (2015, p649-650) 204

provide how for a single house, the addition of a garage might be acceptable, but a 205

8

variation to build a second house might not, whereas, in a contract for 300 houses, 206

instruction for another 20 houses might not vitiate the original contract. 207

208

The first two categories may apply where the contractor requests further details. Whereas, the 209

third category is more likely client instructed scope changes. 210

211

SCENARIO: The contract administrator must decide whether the details are sufficiently 212

similar in nature that the contractor should have included the costs within their fixed 213

price, or are different enough to constitute a variation. In any case, the administrator 214

might ask the contractor what they allowed for to produce a fit for purpose product. 215

5.3 Whether contractor can claim work outside the contract - frustration and restitution 216

At common law, the main relief from absolute liability is when unforeseen circumstances render 217

performance impossible or radically different from the original contract. The contract may then 218

be deemed frustrated, relieving parties of their contractual obligations irrespective of the elect of 219

either party (Dennys and Clay 2015; Burrows, Finn and Todd, 2012). However, the threshold for 220

frustration is generally high and contractors may suffer great loss arising from unforeseen 221

circumstance, such as ground conditions (Burrows, Finn and Todd, 2012). 222

;p 223

If an instruction was deemed a necessary solution to overcome circumstances that would 224

otherwise frustrated the contract, the contractor may be entitled to claim costs for the work 225

outside the contract rates under the doctrine of restitution based on unjust enrichment. 226

However, restitution claims are only available when no other avenue exists through contract or 227

tort, and where enrichment of the benefited party at the expense of the other would be unjust 228

(Davenport and Harris, 1997). Restitution is still an evolving doctrine in Australasia. New 229

Zealand courts have not yet ‘accorded it the status of a cause of action’ (Burrows, Finn and 230

Todd, 2012, p27) and Pavey and Matthews v Paul (1987) was the first Australian case to 231

formally apply unjust enrichment. In Pavey, a client refused to pay for residential building work 232

on the basis that no contract existed. The work was performed on an oral contract when the 233

Builders Licensing Act 1971 (NSW) required residential contracts be in writing. While this case 234

9

may have provided clear application of the doctrine, Dean J in Pavey cautioned that future 235

judges should not use ‘judicial discretion to do whatever idiosyncratic notions of what is fair and 236

just might dictate.’ The following scenarios theorise where restitution might apply in construction 237

claims (Davenport and Durham, 2013, p37): 238

239

Example 1 (p37): ground conditions: 240

…the principal or superintendent refuses to order a variation to overcome some 241

obstacle, eg a defect in the design or a latent site condition. Assume that it is impossible 242

to continue the work specified until the obstacle is overcome. An example may be 243

where the principal has provided a design for footings of a building but the subsoil 244

conditions prove to be such that the design of the footings must be amended or the 245

buildings will be unstable. 246

247

Example 2 (p87): latent structural defects: 248

The specification requires the contractor to replace the tiles on an existing building. 249

When the contractor starts work, the contractor finds some rotten beams that need to 250

be replaced before the tiles can be safely laid. Assume that replacement of beams is 251

not part of the work prescribed by the contract. The owner refuses to direct a variation 252

and tells the contractor that it is the contractor’s problem. A contractor must not perform 253

unsafe work so the contractor has the choice of replacing the rotten beams or not 254

proceeding with the work. If the contractor replaces the beams, that additional work is 255

not a variation. It is not work under the contract (underlining by author). 256

257

Both examples involve work required to fulfil the contract. In the absence of express contract 258

provisions, by offering fixed price contracts, contractors adopt the risk of unforeseen 259

circumstances that render performance more difficult, but not impossible or wholly different. This 260

restricts restitution to where the contract becomes frustrated. According to Burrows, Fin & Todd 261

(2012, p815) the threshold for frustration is high (underlining by author): 262

Performance must have become impossible of performance or “totally different”; the 263

obligation must have been fundamentally altered. Anything less will not do. This, as 264

10

seen, even drastic fluctuations in currency over a period of time do not normally 265

frustrate contracts; nor do very substantial obstructions to the progress of building 266

contracts. Some of this can be justified on the basis of the acceptance of risk by one of 267

the parties. Nevertheless, the hardship caused can be very real and out of proportion to 268

what was envisaged. 269

270

If the contract does provide for such events, then the work is handled within the contract. For 271

example, NZS3910:2013 Clause 5.13 Underground and above-ground utilities treats locating, 272

altering or protecting latent utilities as a contract variation. Similarly, Clause 9.5 Unforeseen 273

physical conditions, treats reasonably unforeseeable physical conditions including artificial 274

obstructions as variations. Davenport and Durham (2013) recommend a catch-all contract 275

clause to avoid restitution claims (such as NZS3910:2013 Clause 5.1.1 General 276

responsibilities). 277

278

In example 2, the contract might be frustrated if replacing roof beams is impossible or 279

represents wholly different scope. If the contract specified replacing a dozen tiles, then replacing 280

most of the roof structure may constitute frustration, whereas, if the contract involved replacing 281

the whole roof, then replacing two rotten roof beams might not. 282

283

SCENARIO: It is unlikely that the instructed detail could constitute something wholly 284

outside the contract scope. NZS3910:2013 contains provisions for Variations including a 285

change in type or quantity or materials (9.1), for Underground and above-ground utilities 286

(5.13), and Unforeseen physical conditions (9.5). 287

288

5.4 Duty to warn 289

At common law, contractors must warn of design issues that are reasonably foreseeable to 290

contractors similar to that employed. Warning of issues early allows for solutions before costs 291

escalate. NZS3910:2013 Clause 5.1 Advance Notification was introduced in the 2013 version to 292

require: 293

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294

5.21.1 295

The Contractor and the Engineer shall each notify the other in writing as soon as either 296

of them becomes aware of any matter which is likely to: 297

(a) Materially alter the Contract Price; 298

(b) Materially delay completion of the Contract Works; or 299

(c) Result in a breach of a statutory duty in connection with the Contract Works. 300

301

Clause 5.21.3 provides that: ‘If the Contractor does not notify of a matter which it reasonably 302

ought to have…’ then any variation will be calculated on the basis that they had, and accounting 303

for the impact being avoided or reduced. 304

305

According to Dennys and Clay (2015, p430) the test of reasonable foreseeability is a matter of 306

fact; contractors will not be expected to vet design details of experts, and it will ‘only be 307

relatively glaring or obvious design deficiencies judged in the light of the knowledge to be 308

expected from a Contractor of the type employed which will give rise to the duty to warn’ 309

(underlining by author). Example cases include: 310

Failing to warn of serious design faults and safety dangers: In Plant v Adams (2000) the 311

court held the subcontractors should exercise appropriate skill, protest vigorously and 312

even walk offsite unless a safe design was produced. 313

314

Failing to warn of increased costs: A builder in NZ was found liable for failing to warn of 315

increases to their estimate after being repeatedly asked to firm their price by the client 316

(Abrams v Ancliffe, 1978). Cook J held that any reasonably careful builder would have 317

warned the client earlier of cost inflation. 318

319

While these cases centre on safety and costs, Craig (1999) commented that the duty imposed 320

in Abrams v Ancliffe could be likened to a duty to warn of design defects. 321

322

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SCENARIO: ECI could influence the extent of what is reasonably foreseeable. For 323

example, the contract administrator may take a stricter stance on contractors claiming 324

variations for requested details if the contractor had greater opportunity to evaluate the 325

design through ECI and if their ECI team included qualified Architects and Engineers 326

(being the ‘knowledge to be expected from a Contractor of the type employed’). 327

328

5.5 Accuracy and clarity of contract documents 329

The contractor may be entitled to claim costs for the detail if it is issued to resolve ambiguities in 330

the original documents. The contra proferetem principle implies that ambiguities in contract 331

documentation err against the provider of the document. In construction, the principle generally 332

applies to drawings, specifications and specific terms or exclusions, rather than standard terms 333

(drafted with representation across clients, engineers and contractors). 334

335

Recent cases relating to exclusion clauses, suggest that courts are taking a practical approach 336

when considering what constitutes ambiguity, and balancing; the intended purpose and natural 337

interpretation of the clause, commercial bargaining power of the parties and their freedom to 338

contractually agree risk apportionment, leaving contra proferentem as a last resort where 339

ambiguity remains (Drilling UK plc v Providence Resources plc, 2016). New Zealand appears to 340

be adopting this approach, in that only where the natural and ordinary meaning cannot be 341

ascertained due to genuine ambiguity will contra proferentem apply (Persimmon Homes v Ove 342

Arup, 2017; Lumley General Insurance v Body Corporate, 2010). 343

344

NZS3910: 2013 2.7.4 allows variation claims for reasonably unforeseen ambiguities that, after 345

clarification from the Engineer result in additional time or cost. In relation to 2S-ECI, the JCT 346

pre-construction services agreement (PCSA) (JCT, 2018) requires contractors to warn of 347

document inconsistencies and ambiguities ahead of agreeing the construction contract. 348

349

SCENARIO: Contractors may be able to claim the difference in costs between conflicting 350

details across drawings. However, if the contractor installs materials based on 351

13

ambiguous drawings, they may be entitled to the difference in cost between materials, 352

but not the cost of removing what was already installed if it is deemed they should ought 353

to have notified in advance. If the contractor was involved in design development 354

through ECI, the threshold of what is considered reasonably foreseeable may be higher. 355

The contractor’s bargaining power may also be considered higher when negotiating 356

through open-book pricing than through competitive tender. 357

5.7 Designer negligence for ‘buildability’ 358

Designers have been found negligent for their designs lack ‘buildability’ on the basis that 359

designs should not rely on exceptional levels of workmanship in order to comply with Codes 360

unless the level of workmanship is specified, such as for a prestigious hotel (Department of 361

National Heritage v Steensen Varming Mulcahy, 1998; Dennys and Clay, 2015, 2-063), and that 362

the quality of documentation should be sufficiently detailed and legible to enable construction 363

without further clarification. While this appears at odds with the contractors’ strict liability, there 364

is no evidence that this changes the contractor’s commercial liabilities when offering fixed price 365

construction contracts for client supplied design. 366

367

Three further cases provide examples: 368

(i) Roof lap tolerances were found unlikely to be achieved by ordinary standards of 369

workmanship and ordinary supervision suffice in less extreme conditions. Judge 370

Hicks QC held the designer negligent for not considering trade literature warning 371

about low pitched roofs, and the client’s representative negligent for failing to 372

supervise. (George Fischer Holding Ltd v Multi Design Consultants, 1998). 373

(ii) A front sealed cladding system was held to lack ‘buildability’ because it relied on a level 374

of ‘exceptional skill’ - above the ‘care and skill ordinarily to be expected’, including 375

working in windy conditions and partly from scaffold. It was similarly held that 376

designs may be defective if they incur very difficult supervision, and may be 377

described as lacking ‘supervisability’. The contractor was also found liable for 378

breaching an implied term to warn of design buildability issues (Equitable 379

Debenture v William Moss Group, 1984). 380

14

(iii) An adhesive-fixed tile cladding resulted in difficulties achieving concrete tolerances to 381

receive the tiles (Victoria University of Manchester v Hugh Wilson Lewis Womersley 382

and Pochin, 1984). Judge Hewey held that the architects failed to heed tiling 383

literature or properly consider junctions and movement joints and in specifying very 384

small gaps between tiles ‘did not have proper regard for buildability.’ 385

386

The above cases involved completed buildings that leaked. They did not involve contractors 387

requesting design changes on the basis they could not otherwise build what was designed. Also 388

both Equitable Debenture (1984) and George Fischer (1988) involved design and build 389

contractors, meaning the client did not provide the contractor with the design. Instead the clients 390

sued the designers who in both cases had provided collateral warranties directly to the clients. 391

In George Fischer (1988) the design and build contractor went into liquidation at the start of the 392

trial. 393

394

Interestingly, in NZ, The Building Amendment Act (2013) s.362 (I) requires that materials for 395

residential building work be ‘suitable for the purpose’ and workmanship be performed using 396

‘reasonable skill and care’. However, this only applies to residential building contracts over 397

$30,000.00 for household units. Whereas, NZS3910:2013 is typically used for commercial or 398

infrastructure works. 399

400

A designer in New Zealand was found negligent for, among other things, their design lacking 401

‘’buildability’ (Building Performance, 2016) under the Licensed Building Practitioner (LBP) 402

scheme which came into effect in 2007 and requires all designers and residential building 403

practitioners to be licenced. The Board cancelled the designer’s licence and ordered them to 404

pay costs for incompetence and disrepute after the designer failed to carry out adequate site 405

investigations, varied a producer statement from a previous project, and their design was found 406

to be incomplete with hand drawn notes that were deemed illegible and lacking sufficient detail 407

to prescribe how the building was to comply with the New Zealand Building Code (NZBC). The 408

Board noted that: 409

410

15

…a designer’s plans should be able to stand by themselves, should not require 411

clarification, and should document how the building work is to be undertaken so that 412

code compliance is achieved. The Board has also consistently conveyed in previous 413

decisions the message that it is not appropriate for licensed building practitioner 414

designers to use the building consent process as a peer review or quality assurance 415

mechanism and/or rely on the building consent authority to pick up any anomalies in the 416

design documents. 417

418 The Senior Technical Advisor agreed that contractors may incur a strict commercial liability for 419

buildability when tendering fixed price contracts, but clarified that the LBP Board take a holistic 420

approach to ‘accountability’ based on the reasonable standard they expect of Licensed 421

Designers. This, therefore, differs from ‘an implied guarantee of buildability and the subsequent 422

liability to compensate for the problems experienced – of which the Board would have no 423

comment’ (personal email communication, 15 December, 2016). 424

425

Based on the above, contractors remain liable for the costs of design solutions when they 426

request these after entering a fixed-price contract for design supplied by the client. Separately, 427

Licensed Designers may be accountable to the LBP Board (and possibly ordered to pay costs) if 428

their design is deemed negligence based on such breaches as insufficient investigations or 429

illegible and inadequately detailed drawings. Courts may also deem designers negligent if their 430

designs rely on exceptional levels of workmanship in order to comply with the Building Code, as 431

supported by the Building Amendment Act requirements for residential building contracts over 432

$30,000.00 for work involving household units. 433

434

5.8 Claim entitlement flowchart 435

Figure 1 provides a decision flowchart summarising the key considerations when evaluating 436

claims related to design buildability. Decision gateways are referenced to the authoritative 437

Hudson’s Building and Engineering Contracts (Dennys and Clay, 2015). This demonstrates two 438

main grounds for claims: 439

16

Instructed details sufficiently different in character from the original scope to constitute a 440

contract variation, so long as contractor has not breached their implied duty to warn 441

Instructions wholly different to the original scope or the contract is frustrated when 442

unforeseen events render performance impossible or wholly different. 443

444

445

Figure 1: Decision-matrix for determining contractor claim entitlement 446

447

6 Effect if consultant manager (no head contractor) 448

Consultant construction managers (CMMs) are employed under the construction management 449

procurement model. The client employs the CMM to act as their representative in planning and 450

administering the works under a contract for services, sometimes call a construction 451

17

management agreement (CMA), with the client employing the trade packages directly (no head 452

contractor). 453

6.1 Duty of care 454

CMMs have a lessor duty than head contractors. CMMs provide professional services, unlike 455

contractors who are deemed to deliver a product. As such, CCMs do not guarantee project 456

outcomes, only that they will take reasonable skill and care. For example, head contractors may 457

incur damages for delay by their subcontractors , whereas, clients might rely on their CMM to 458

apportion damages to individual trade contractors or otherwise establish that late completion 459

was resultant of the CMM’s negligence. The test of professional conduct was established in 460

Bolam v Friern Hospital Management Committee (1957) and extended to other professionals 461

who, like doctors, cannot guarantee successful operations. The test of what is reasonable skill 462

and care is measured in terms of what any other reasonably competent professional would have 463

done given similar circumstances, anything less may be deemed negligent (Monastiriotis and 464

Bodnar, 2013). 465

466

6.2 Procuring trade packages 467

However, what is considered ‘reasonable’ of CMMs is yet to be fully tested in terms of scope 468

and strictness. For example, Great Eastern Hotels v John Laing Construction Management 469

(2005), the first case involving a CM agreement (Keating Chambers, 2018), held that CMMs 470

must avoid gaps when procuring sub-trades. The strict outcome has been compared to a 471

contractor’s fitness for purpose warranty (O’Carrol, 2006). 472

473

6.3 Duty to warn 474

CMMs provide services like PMs, Architects or Engineers in representing their clients and 475

administering projects. A key duty is keep their client informed and protected from foreseeable 476

risks, such as warning about the following; non-performance by others in the project team 477

(Chesham Properties v Bucknall Austin, 1996); tendering packages of substantially incomplete 478

design (Plymouth & South West v Architecture, Structure & Management, 2006); recommending 479

18

clients obtain adequate insurances to sufficiently cover potential damages (William Tomkinson 480

and Sons v Parochial Church Council, 1990); ensuring contractors have adequate insurances in 481

place (Pozzolanic Lytag v Bryan Hobson, 1999); ensuring scope of works are not under-482

estimated (Ralphs v Francis Horner, 1987); budgeting for inflation costs (Nye Saunders and 483

Partners v Bristow, 1987); advising about contractor reliability (Pratt v George J Hill Associates, 484

1987); serving notice on contractors in serious breach of their obligations to maintain progress 485

(West Faulkner Associates v Newham, 1995). In doing so, they must act persuasively. It 486

insufficient to simply act as a ‘post box’ (Gould, 2011; Royal Brompton Hospital v Hammond, 487

2001). 488

489

The extent that PMs or CCMs should warn of design documentation problems is less clear. PMs 490

should ensure that other team members satisfy their obligations. However, this may not extend 491

to ensuring the correctness of their decisions (Royal Brompton Hospital v Hammond, 2001). 492

Otherwise, PMs would effectively be doing everyone else’s work (Gould, 2011). This indicates a 493

lower level duty to warn about detailed drawing matters than contractors, Engineers or 494

Architects who are likely more intimately involved in the drawings. 495

496

6.4 Application of CCM obligations 497

Both contractors and consultants typically provide services in the first stage of 2S-ECI. Then, 498

CMMs provide services through the construction stage, while head contractors adopt a strict 499

liability for project outcomes when they enter fixed price construction contracts. Contractors’ 500

strict liability includes the work of their subcontractors and coordination and connectivity 501

between trades. Whereas, CCM’s may instruct individual trade contractors to manage 502

connectivity, on the client’s behalf. Instructions for extra blocking, fixings, flashings and sealants 503

may involves say three different subcontractors (Carpentry, Cladding, and Sealants). Table 1 504

summarises key comparisons. 505

506

Table 1: Summary comparison of head contractor and CCM obligations 507 Obligation Head contractor Consultant manager

Construction Absolute liability and fitness for purpose. Reasonable skill and care for planning and

19

NZ Building Act stipulates reasonable standards of workmanship and fit for purpose materials for residential work.

managing construction work on behalf of the client who employs trade packages directly. (Section 6.2)

Duty to warn Duty through tort to warn of design compliance issues or cost increases after providing a budget. (Section 5.4)

Test of foreseeability based on facts, and what any other reasonably competent similar contractor would have foreseen. (Section 5.4)

ECI may influence foreseeability threshold in terms of time afforded and ECI team composition. (Section 5.4)

Duty to warn of contractual risk and non-performance by team members, taking reasonable skill and care. (Section 6.3)

Procurement Absolute liability for procuring all necessary work (inclusive price principle). (Section 5.1)

Procure all works necessary without gaps, so far as not negligent. (Section 6.2)

Time Absolute liability.

Client can charge liquidated or general damages for late completion except for extension of time grounds permitted in the contract. (Section 5.1)

Client relies on consultant apportioning damages to applicable trade packages, or must demonstrate that damages are consequential of the consultant’s negligence. (Section 6.4)

Quality Absolute liability. Contractor responsible for remedying defects at their expense. (Section 5.1)

Contractor may request that instructed drawings will comply with the Building Code when building using reasonable levels of workmanship (Section 5.7)

Client relies on consultant apportioning remedial work to individual trade-packages, or must demonstrate the defects are consequential of the consultant’s. (Section 6.4)

Cost Held to fixed price, except for contractual compensation events, sufficiently different instructions, document ambiguities, or frustration. (Sections 5.1 – 5.5)

Reasonable skill and care when providing a budget. (Section 6.1). Must warn of cost increases. (Section 6.3)

Instructed drawing details

Contractor incurs absolute liability for instructions similar in nature. Contract administrator respond to claims for instructed drawings by enquiring what the contractor allowed within their fixed price to produce a fit for purpose product. (Section 5.1)

Contractor may claim variation costs for instructions sufficiently beyond the original scope. (Section 5.2)

Contractor may refuse instructions wholly different to the original scope or perform work outside contract rates (Section 5.2)

Contractor may claim cost difference for ambiguities in drawings under contra proferentem. (section 5.5), but not the cost for removing incorrect materials if they reasonably ought to have warned in advance (5.4 and NZS3910:2013, 5.21.1)

May enforce inclusive price principle to individual trade-packages, though does not adopt an overall absolute liability for connectivity like a head contractor. (Section 6.4)

508

20

SCENARIO: 509

A Carpentry subcontractor is unlikely responsible for integration with the cladding 510

system, instead relying on the head contractor’s methodology. For example, in Aurum v 511

Avonforce (2001) a subcontractor was deemed not liable for a partial excavation 512

collapse, because they could not know the DB contractor’s method of work. CCMs could 513

argue the inclusive price principle against individual subcontractor claims, such as the 514

Carpentry contractor requesting details of fixings. Though calling an instruction that 515

details extra work, a ‘variation for the contractor’s convenience’ could be a hard sell. The 516

client may claim negligence of the CMM if they can demonstrate that the instruction 517

resulted from the CMM failing to procure trade packages or that they failed to warn of 518

foreseeable design problems. Unlikely for a construction detail. 519

520

7. Conclusions 521

Key considerations for determining whether instructed detailed drawings vary the contract under 522

NZS3910:2013 when instructed post contract signing, were found to include: 523

Whether the detail is within what the contractor should have allowed for within their 524

fixed price to compensate for any lacking details, including works of both a temporary 525

and permanent nature (inclusive price principle and NZS3910:2013, 5.1.1). 526

Whether the instruction details work that is different enough to constitute a contract 527

variation, or so wholly outside the original scope to be considered outside the contract 528

itself. 529

Whether the drawing is issued at the contractor’s request to suit their construction 530

methodology. Generally, contractors warrant buildability when offering fixed price 531

contracts for client supplied designs. Such instructions may be issued as variations for 532

the contractor’s convenience with no additional time or cost. Though NZS3910:2013 533

treats reasonably unforeseeable latent conditions as variations (such as 5.13 534

Underground and above-ground utilities or 9.5 Unforeseen physical conditions). 535

21

Whether the instruction resolves problems that could have been mitigated had the 536

contractor provided advanced notification (5.21.1). Any resulting variation would be 537

calculated on the basis that the contractor had warned where they reasonably ought to. 538

Whether the instruction resolves drawing ambiguities. The contractor may be paid the 539

difference between two products on the basis of contra proferentem. NZS3910:2013, 540

2.7.4 treats reasonably unforeseeable ambiguities as variations. The threshold for 541

foreseeability may be deemed higher where the contractor was involved in design 542

development through ECI. 543

544

Design buildability responsibilities were also considered for designers through case law and the 545

NZ LBP scheme. While designers may have responsibilities for insuring their designs are 546

sufficiently detailed to comply with Building Code when built using reasonable levels of 547

workmanship, this does not appear to change the commercial liabilities contractors face when 548

entering fixed-price construction contracts. 549

550

Implied duties of contractors and CCMs were compared at common law. Both provide services 551

in the first stage of 2S-ECI taking reasonable skill and care. During the construction stage, 552

CCMs continue to provide a project management and administration services, whereas, head 553

contractors adopt a more absolute liability to deliver a defect free product with single-point 554

responsibility for all work including that of subcontractors and including for connectivity. The 555

benefit of single-point accountability should perhaps be balanced in terms of, for example, 556

CCMs acting on behalf of their clients to reduce contractor claims rather than head contractors 557

claiming against their clients. 558

559

In the absence of an implied body of opinion, the actual scope of CCM obligations depend on 560

the written services agreement. Construction management agreements (CMAs) should carefully 561

consider the scope of work, such as planning and procuring a comprehensive set of trade 562

packages without gaps, administration, and warning of contractual issues such as cost 563

increases and insurances, non-performance by other team members, and whether reviewing 564

designs. 565

22

566

References 567

Abrams Ltd v Ancliffe (1978) 2 NZLR 420, New Zealand Court of Appeal, Wellington. 568

Ashworth A (2012) Contractual procedures in the construction industry (6th ed.). Pearson, 569

Essex, UK. 570

Aurum Investments Limited v Avonforce Limited (in liquidation) [2001] CILL 1729. 571

Bailey J (2007) What lies beneath: site conditions and contract risk. Society of Construction Law 572

UK. 137. 573

Benaim (UK) Ltd. v Davies Middleton & Davies Ltd (2005) APP.L.R. 06/15. 574

Bolam v Friern Hospital Management Committee (1957) 1 WLR 582. 575

Building Amendment Act (2013), available at: 576

http://www.legislation.govt.nz/act/public/2013/0100/latest/DLM3957236.html (accessed 01 577

November 2018). 578

Building Performance. (2016) Codewords issue 75, available at: 579

https://www.building.govt.nz/about-building-performance/news-and-580

updates/codewords/codewords-issue-75/#jumpto-recent-determinations 581

Burrows J, Finn J and Todd S (2012) Law of Contract in New Zealand (4th ed.). LexisNexis, 582

Wellington, New Zealand. 583

Chesham Properties v Bucknall Austin (1996) 82 BLR 92 584

Chynoweth, P. (2008) Legal research. In Advanced Research Methods in the Built Environment 585

(Knight A. and Ruddock L. (eds.)). Wiley-Blackwell, West Sussex, UK, pp28-38. 586

Craig RW (1999) Procurement Law for Construction and Engineering Works and Services. 587

Blackwelll, London, UK. 588

Davenport P and Harris CH. (1997) Unjust enrichment. The Federation Press, NSW, Australia. 589

Dennys N and Clay R (2015) Hudson’s building and engineering contracts (13th ed.). Sweet & 590

Maxwell, London, UK. 591

Department of National Heritage v Steensen Varming Mulcahy (1998) 60 Con. L.R. 33 592

Drilling UK plc v Providence Resources plc [2016] EWCA Civ 372 593

23

Equitable Debenture Assets Corporation Ltd v Moss (William) Group Ltd (1984) 2 Con. L.R. 1; 594

(1984) 1 Cost. L.J. 131 OBD (OR). 595

Finnie, D, Ameer Ali N and Park K. (2018) Enhancing offsite manufacturing and prefabrication 596

through early contractor involvement (ECI) in New Zealand. Management Procurement and 597

Law 171(4):1-35, https://doi.org/10.1680/jmapl.17.00029 598

Francis S and Kiroff L (2015) Attitudes and perceptions towards early contractor involvement 599

procurement. RICS Cobra 2015, available 600

at: https://unitec.researchbank.ac.nz/bitstream/handle/10652/3179/Attitudes%20and%20Per601

ceptions%20.pdf?sequence=1&isAllowed=y (accessed 31 October 2018). 602

George Fischer Holding Ltd v Multi Design Consultants Ltd (1998) 61 Con. L.R. 85. 603

Gould N (2011). Project management: the liability and standards expected of a project manager. 604

See https://www.fenwickelliott.com/research-insight/articles-papers/project-management-605

liability-and-standards-expected-project-manager (accessed 01 November 2018). 606

Great Eastern Hotels v. John Laing Construction Management (2005) EWHC 181. 607

Harris C (2018, October 20). Picking up the pieces: The story behind the Ebert Construction 608

collapse, Stuff, available at: https://www.stuff.co.nz/business/property/106238607/picking-up-609

the-pieces-the-story-behind-the-ebert-collapse (accessed 10 December 2018). 610

Keating Chambers (2018), “Great eastern hotel co ltd v john laing construction ltd”, available at: 611

http://www.keatingchambers.com/case-report/great-eastern-hotel-co-ltd-v-john-laing-612

construction-ltd/ (accessed 23 January 2018). 613

Kirkham R (2007) Ferry and Brandon’s Cost Planning of Buildings (8th ed.). Blackwell, Oxford, 614

UK. 615

Lumley General Insurance (NZ) Ltd v Body Corporate No 205963 [2010] NZCA 316, (2010) 16 616

ANZ Insurance Cases 61-853 617

Masterman J (2002), Introduction to Building Procurement Systems (2nd ed.). Taylor & Francis, 618

London, UK. 619

Monastiriotis E and Bodnar A (2013) Construction professional negligence update. Society of 620

Construction Law UK. D159. 621

NZIOB (2019) The best of times, the worst of times – by Malcolm Fleming, available at: 622

http://www.constructionnews.co.nz/opinion/the-best-of-times-the-worst-of-times-by-malcolm-623

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fleming?A=SearchResult&SearchID=12190984&ObjectID=3565117&ObjectType=35 624

(accessed 5 March 2019). 625

NZIQS (2018) Enhancing NZ’s construction industry: a briefing from the NZ Institute of Quantity 626

Surveyors, available at: https://www.nziqs.co.nz/Resources-Tools/News/News-Media-627

Releases/ID/97/Enhancing-NZs-Construction-Industry-A-briefing-from-the-NZ-Institute-of-628

Quantity-Surveyors (accessed 10 December 2018). 629

Nye Saunders and Partners v Bristow (1987) 37 BLR 92. 630

O’Carrol C (2006) Construction law in 2005. See 631

http://www.pinsentmasons.com/mediafiles/971416772.htm (accessed 23 January 2018). 632

Paradine v Jane (1647) EWHC KB J5. 633

Pavey and Matthews Pty Ltd v Paul (1987) HCA 5; 162 CLR 221; 61 ALJR 151; 69 ALR 577. 634

Persimmon Homes v Ove Arup [2017] EWCA CIV 373. 635

Plant Construction Plc v. Clive Adams Associates and JMH Construction Services Ltd (2000) 636

B.L.R. 137. 637

Plymouth & South West Co-Op Soc. Ltd v Architecture, Structure & Management Ltd (2006) 638

ABC.L.R. 01/10 639

Pozzolanic Lytag Limited v Bryan Hobson Associates (1999) 89 BLR 267. 640

Pratt v George J Hill Associates (1987) 38 BLR 25. 641

Ralphs v Francis Horner & Sons (1987) unreported. 642

Rosenberg K (2012) Design risk allocation under a traditional build contract. Society of 643

Construction Law UK, D140. 644

Royal Brompton Hospital NHS Trust v Hammond (2001) 76 Con LR 148. 645

Slowey v Lodder (1900) 20 N.Z.L.R. 321. 646

Standards New Zealand (2013), NZS3910:2013 Conditions of Contract for Building and Civil 647

Engineering Construction, Standards New Zealand, Wellington, New Zealand. 648

Tharsis Sulphur & Copper Company v McElroy & Sons (1878) 3. App. Cas. 1040. 649

The Power Co Ltd v Gore District Council (1997) 1 NZLR 537. 650

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Hampshire, England. 652

25

Tower M and Bacarini D (2008) Risk pricing in construction tenders – how, who what. 653

Construction Economics and Building 8(1). 654

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(Contractors) Ltd (1984) 2 Con LR 43. 656

Walton J (2007) Unforeseen ground conditions and allocation of risk before the roof caved in. 657

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K.pdf (accessed 14 September 2018). 661

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International 4(1): 20-26. 664

Worksop Tarmacadam Co Ltd v Hannaby (CA) (1995) 66 Con LR 105 665

Wilkins and Davies Construction Co Ltd v Geraldine Borough (1958) NZLR 985. 666

William Tomkinson and Sons Ltd v Parochial Church Council of St Michael and Others (1990) 6 667

Const LJ 319. 668

669

670

671

Figure captions (images as individual files separate to your MS Word text file). 672

673

674

675

676

677

678

679

680

Figure 1. Claim entitlement flowchart 681

Table 1. Summary comparison of head contractor and CCM obligations 682 683

684

Design development post contract signing - client or contractors cost?

Reviewer feedback Responses:

Reviewer #1

1 The article has not improved. There is no clear aim or purpose. Objectives are unclear- there is consequently no progress. It reads more like a series of notes restating well known material and the authors do not seem to know how to reference, or reference legal points.

The paper has now been re-written for clarity. Admittedly, the purpose, objectives and structure of the paper were previously unclear. The lead author acknowledges the considerable time and effort of the Reviewers in shaping this paper. The purpose and objectives of the paper have been stated in the beginning of the Introduction as recommended by Reviewer #5. Some sections have been moved to improve the flow of the paper, and the whole paper has been refined for clarity.

2 There is nothing original about this paper, nor do I consider that its content contributes to the development of any aspects of law or practice in the industry. Although it may not be a legal article its substance shows it purports to be one, and to comment authoritatively on the law- and as it fails on this basis alone, I could not approve this for publication, as it is unclear.

The lead author has 7 years of experience operating as a contract administrator for what is now New Zealand’s largest construction company. From the Author’s experience, the NZ industry has always struggled with evaluating entitlement of design buildability claims. Now in the role of academic, the Author often responds to questions from industry about buildability claim entitlement. This paper forms part of a larger research project into early-contractor involvement. Based on interviews with client, PMs, architects and PQS across New Zealand, there is a clear lack of understanding in this area. The findings of these interviews are the subjective of a separate research paper already accepted for the PAQS 2019 International Congress. The Lead Author now has a nationwide network awaiting publication of this paper, including major professional bodies. The Introduction now more clearly addresses the lack of empirical evidence specifically relating to instructed design development post contract signing, with most disputes being settled privately. The Introduction also more clearly demonstrates that claim entitlement decisions are made by contract administrators who generally lack specialist legal training of implied contract terms. As a big picture, this paper is intended towards making construction contracts clearer to their users in order to reduce ambiguity (and therefore risk) and subsequently reduce disputes (and the need for lawyers!). This paper certainly does fall somewhere between the Law and Management categories. Perhaps categorising under Management, may better attract the intended audience (PMs, architects, PQS). Will leave the decision with the Editor.

3 At 51 'A legal scholar approach is applied to examine how contractual obligations are likely to be 52 interpreted and enforced under NZ legislation in the context of a claim scenario,'

Early contractor involvement is relevant to the objective (iii). The section introducing ECI was moved to its own separate section following Reviewer 1’s prior feedback that the original Introduction section was too long. This has now been condensed back into the last paragraph of the Introduction.

Response to reviewer and editor comments

It says lines 47-8 'This article sets out to address; whether the variation claim should be accepted; effect of involvement in design development; effect if claimed from a building subcontractor to a consultant construction manager (CCM) (i.e., no head contractor). But the first thing it does is discuss 'Early Contractor Involvement'

4 E. g., 85 'Clients do not warrant that the design provided to contractors is buildable (Bailey, 2007) nor that 86 bills of quantities are accurate (Murdoch and Hughes, 2008).' The above references are generalisations, and are not primary authorities for the propositions. Both the above texts referred to are old versions- e.g., it is now Murdoch, Champion and Hughes 2015

This is a well-established legal position. Bailey (2007) provided a number of legal case references to validate this. The lead Author could include many case law references to support this. The effect will not change, and the journal article is restricted to a maximum word count. The point about SOQ’s could have been misleading without proper content, and has been clarified as follows: The contractor’s strict liability is not necessarily reduced by the client providing a schedule of quantities. While the contractor may rely on the accuracy of the SOQ aligning with the drawings (unless the SOQ disclaims liability), this may not reduce the contractor’s absolute liability for unforeseen circumstances. In Workshop Tarmacadam v Co Ltd Hannaby (1995) a contractors claim for additional quantities due to encountering hard rock was rejected, despite the contract containing a re-measurement clause. Russell LJ said it would have been the ‘easiest thing in the world’ for the plaintiffs to make a specific provision to deal with ‘unforeseen conditions being encountered’, had they chosen to.

5 'Early warning provisions have featured in the NEC contract from the beginning (Klein, 2017)' the provisions are in the contracts-they should be citing the authors of the contract -not Klein! He is not the authority for this.

This was never about establishing an authority. The mention of NEC simply provides a comparison to the approach taken in NZS3910:2013. Klein (2017) simply provides further reading about NEC about this which may be of interest to readers. The reference to NEC and Klein (2017) removed.

6 151 ' SCENARIO: This reinforces the Engineer's position that detailed drawings issued, do not 152 necessitate additional payment, and could instead be instructed as a 'variation for the 153 contractor's convenience.' The contractor's price becoming unprofitable (bad bargain) 156 4.2 Level of workmanship (reasonable versus exceptional) 157 The contractor may have some argument against absolute liability if a defective building is 158 finished and the Architect's design relied on exceptional levels of workmanship in order to meet 159 code compliance.' How does 156 connect with the previous 153 or 4? There is no clear development of arguments or positions.

Section 5.7 has been changed to: Designer negligence for ‘buildability’ A case of a designer found negligent under the NZ Licensed Building Practitioner (LBP) scheme has also been added, with supporting commentary from the Senior Technical Advisor.

7 'according to Dennys and Clay (2016, p430) some contract clauses may be inconsistent with the 214 implied legal duty to warn.'

This reference to Dennys and Clay was simply to highlight that prior literature identified the potential for express contract clauses to not clearly align with implied common law position (key point of the paper). Then the actual interpretation of NZS3910:2013 Advanced

A 2001 case is given as an authority! Proper citations should be given. There are indeed, legal tests regarding the duty to warn, as well as for what is reas. foreseeable.

Warning provisions is examined. The paper also considers effect of contractor involvement in design development and composition of their ECI team, something not previously researched. The reference to Denny and Clay has been removed and a clearer example provided in the Introduction. No case was provided as an absolute authority specifically relating to design development post contract signing. The paper applies cases through analogy to provide key considerations when evaluating claim entitlement. The reference to Aurum v Avonforce (2001) was similarly to simply highlight that prior literature suggests that this area of law is still evolving and NOT definitive. It is certainly not an authority for evaluating contractor claims for detailed design development post contract signing. How could it be!? What is reasonably foreseeable to a contractor on a construction project comprising possibly hundreds of drawings, and taking account of any contractor involvement in the design development, and composition of the contractor’s ECI team is always going to be a difficult area. These are areas not previously considered in research. The paper highlights key considerations. The reference to Aurum v Avonforce (2001) has been removed.

8 Spelling needs attention 254 'The contra proferetem principle' and 262 'parties to contractually agree risk apportionment, leaving contra proferntum'

Spelling corrected. This would, no doubt, have been picked up the typist editor.

9 264 'NZ law in that only where the natural and ordinary 264 meaning cannot be ascertained due to 265 genuine ambiguity will contra proferentum apply (Lumley General Insurance v Body Corporate, 266 2010). They have not considered the implications of relevant major developments in the law since 2010 e.g., Persimmon Homes v Ove Arup [2017] EWCA CIV 373; Executors Ltd v QBE Insurance (International) Ltd [2014] NZCA 447[2015] 2 NZLR at [132], and Tower Insurance Ltd v Skyward Aviation 2008 Ltd [2014] NZSC 185, [2015] 1 NZLR 341 at [32]. 273 'SCENARIO: In context of design details, it appears that contra proferetem may be 274 considered a last resort after taking a practical approach to interpretation, and 275 considering the overall intent, and parties' bargaining power. Both foreseeability and 276 bargaining power may be influenced by relational procurement systems such as 2S-ECI. 277 This modern stance potentially reduces the contractor's ability to claim for document 278 inconsistencies.' The above is not a scenario. It does attempt to provide an appraisal of the role of the contra preferentum doctrine

The focus of the article is on entitlement of design buildability claims relating to detailed design development. The paper does not propose any definitive outcome on contractor claims. It is clear (including from Reviewer 1’comment) that there is an absence of any authoritative law specifically relating to buildability claims for construction contracts. The authors reviewed a number of legal cases relating to contra proferentem. The cases listed by Reviewer 1 are still all relating specifically to exclusion or indemnity clauses mostly for insurance. A well-established problem in construction has been contractors competitively bidding low, then aggressively claiming any inconsistencies in design documentation. Many references could support this. The general implication as suggested in the paper, is that a more practical approach may be taken where wider considerations may be taken into account by contract administrators such as relational aspects and the extent of contractor involvement in the design development. The cases listed by Reviewer 1 could hardly be deemed to add any ‘major developments’ specifically relating to detailed drawings being instructed post contract signing. For example, the following commentary on Persimmon Homes v Ove Arup [2017]: ‘Finally, Persimmon Homes is yet another decision in which the Court of Appeal has expressed its view on the limited use which can be made of the contra proferentem rule when construing exclusion

clauses in commercial contracts.4 To the extent that the rule remains of any use, it is only as a last resort where consideration of the ordinary meaning of the words and commercial context have not yielded a result. It serves no purpose where the words and meaning of the exclusion clause are clear.’

https://www.incegdlaw.com/en/knowledge-bank/there-s-nothing-special-about-exemption-clauses-persimmon-homes-v-ove-arup

Reference to Persimmon Homes v Ove Arup [2017] added n paper. This was substantiated in the paper in terms of the effect of NZS39910:2013 Advanced Warning provisions and contractor involvement in design development, something not considered in any prior research. Reviewer 1 does not offer any contrasting position. The conclusion to the section has been clarified as follows: SCENARIO: Contractors may be able to claim the difference in costs between conflicting details across drawings. However, if the contractor installs a material or system where drawings showed inconsistencies, they may be paid the difference in costs between systems, but not the cost of removing what was already installed, if it is deemed that they should have foreseen the problem and provided advanced notification. If the contractor was involved in design development through ECI, the threshold of what is considered reasonably foreseeable may be higher. The contractor’s bargaining power may also be considered higher when negotiating through open-book pricing than through competitive tender.

10 306 'A potential avenue exists for contractors to claim outside the contract through restitution based 307 on unjust enrichment. This provides a basis of claims, where no other avenue exists through 308 contract or tort, and where an exchange of value occurred where enrichment of the benefited 309 party at the expense of the other, would be unjust (Davenport and Harris, 1997). However, prior 310 literature on the scope of restitution may conflict with principles of absolute liability and the 311 inclusive price principle.' Again terms, doctrines need to be accurately defined, with uptodate referencing. 366 'SCENARIO: Frustration and restitution would only apply if the instructed details were 367 wholly different to the original contract. 368 4.7 Interpretation of express contract terms 369 Standard form contracts may specify the general scope of variations and provide pricing

Again Reviewer 1 offers no contrasting position. Section 5.3 has been re-titled: Whether contractor can claim work outside the contract - frustration and restitution The section considers under what circumstances instructed details may be considered ‘outside the contract.’

370 procedures. For example, NZS3910 Clause 9.1 provides that the:' The section makes no sense...

11 There are spelling mistakes in 406 Figure 1 and Hudsen is a commentator not not authority for the law- that is case law and legislation

Spelling corrected. This would, no doubt, have been picked up the typist editor. Hardly a reason to reject the paper.

A duty to warn is started at 206 then stopped at 252 and then resumed at 430- why? It remains unclear. The material needs on overhaul and logical organisation.

Section 5.4 considers the contractors’ duty to warn. Section 6.3 considers a consultant managers’ duty to warn.

12 The supposed conclusions at 484 do not clearly relate or connect to 46 'This article sets out to address'...... This authors may benefit from a ghost writer

Reviewer comments should provide constructive feedback in terms of how the paper may be improved, and avoid subjective attacks such as Reviewer 1’s ‘ghost writer’ comment. That said Reviewer 1’s comments have been acknowledged toward the paper now reading more clearly.

13 There is certainly insufficient law or legal discussion to justify the conclusion at 514 'While focusing on the NZ jurisdiction, with examples drawn from the Building Act 2004 and 515 NZS3910:2013, NZ case law has followed English common law in this area, so findings are 516 useful across common law jurisdictions.'

The context application was widened based on a previous reviewer’s suggestion that the paper may be of more interest is expanded to other jurisdictions. The context has now been clearly narrowed to New Zealand legislation and contracts.

Reviewer #4:

14 Reviewer #4: For authors have made an excellent effort to address the comments from reviewers systematically. There are 2 areas that the authors could consider for improvement. There is no reference to the context in either the title and the abstract, which could be addressed with minimal effort. Also given the atypical structure of the paper which contains legal analysis of 'scenarios', it would be advisable add a section with the introduction describing the structure of the paper, and this would undoubtedly improve the accessibility and readability of the paper.

The paper is very much improved thanks to the feedback of Reviewers. The title is changed to: Design development post contract signing - client or contractors cost? The context has now been clearly narrowed to New Zealand legislation and contracts. The purpose and objectives of the paper have been stated in the beginning of the Introduction. Some sections have been moved to improve the flow of the paper, and the whole paper has been refined for clarity.

Reviewer #5:

15 Abstract It would be helpful if the Abstract identified the Form of Contract and the assumptions made as to the type of contract being considered. It would appear that the paper is restricted to considering Fixed Price Contracts and, I think, Design & Build Contracts since there is later reference to being responsible for providing a product which is 'fit for purpose'. It would also appear that the paper relies on the NZ Building Act for its conclusions or at least some of those conclusions. If the paper relates to legislations other than that of NZ it

The title is changed to: Design development post contract signing - client or contractors cost?

Form of contract NZS3910:2013 and lump sum contract is added to the abstract. Note that fitness for purpose obligations do apply for contractors for construction only contracts. If the contract were silent, then the contractor would adopt this implied fitness for purpose obligation for design also. This may incur problems around obtaining professional indemnity insurances (see Do Design and Build Insurance Policy Wordings Fit the Bill? By Jeffrey Brown, published by the Society of Construction Law UK.

would be helpful to identify at the start of the paper where and how this paper applies. It would also be helpful if the Abstract set out the specific aims of the paper which are presently found at line 46 of the Introduction.

The reference in conclusions to wider application beyond NZ has been removed. The aims at line 46 were already included in the abstract. They are now enumerated to better highlight.

16 If the specific aim of the paper cannot be expressed in the Abstract, then it would be helpful if it were stated at the very beginning of the Introduction rather than at lines 46 so that the reader can understand where he or she is being led through the paper.

The aims at line 46 were already included in the abstract. They are now enumerated to better highlight. The purpose and objectives of the paper have been stated in the beginning of the Introduction. Some sections have been moved to improve the flow of the paper, and the whole paper has been refined for clarity.

17 Regarding clarity of intentions, line 2 states that 'Assessing design buildability risk is crucial for contractors in New Zealand' but does not explain why this applies particularly to NZ contractors. One suspects it arises from provisions of the NZ Building Act but it would provide clarity if the statement were explained at the start and why the various NZ contractors mentioned have, apparently, chosen to leave the market.

The Introduction has been re-written to better portray the New Zealand context and why evaluating design buildability risk is important.

18 At line 39 for further example, the paper provides a 'typical scenario' where a contractor is employed on a fixed price contact to construct a new university block. This may be typical in NZ but I do wonder how typical it is globally particularly in UK contracts where NEC or JCT Forms of Contract may be more common and re-measurement contracts of one sort or another are usual. Whatever the assumptions made in the paper, it would be helpful if they were expressly identified because without this the bold statements of law given later in the paper may appear to be open to question.

Again, this section has been re-written for greater clarity. The context is now narrowed to NZS3910:2013. The point about the NZ Building Act has been clarified in that a reasonable standard of workmanship is implied for residential building contracts over $30k for work to residential dwellings. This is to provide an example of alignment with the UK cases involving designer negligence where designs relied on exceptional levels of workmanship.

19 Similarly at line 46-48 the paper identifies the scope of the paper but should also, in my view, identify which Forms of Contract and type of contract (presumably fixed price contracts) are being addressed and what legislatures are being considered.

The context is now clarified as lump sum construction only contracts under NZS3910:2013 (most typical in New Zealand).

20 Part 3 Comments above apply also to part 3 in identifying the assumptions made in the employment of the CMM.

The scope of Section 6 has been clarified: This section examines CMM duties implied through case law and compares with that of contractors.

Part 4 Clarity would be helpful at lines 93 and 111 where liability to provide a 'fit for purpose' product is considered. Normally this liability would be imposed only where the contractor has designed the project and the comment that liability 'depends on the interpretation of the contract' could usefully be expanded to give some further guidance.

The section about absolute liability has been re-written for clarity. Absolute liability and fitness for purpose relate to contractors in terms of their commercial liability, rather than a designer’s responsibility to design something fit for the building users (taking reasonable skill and care). For example, contractors must remedy any defects at their cost, without clients first having to establish negligence (as they would for a designer).

21 Part 4.3 Scenario Reference is made to the Engineer taking a stricter stance on claims for variations. I wonder if that was intentional or should the reference have been to the courts taking a stricter stance? There may not be an Engineer in some Forms of Contract (NEC for example). Again this would be made clearer

NZS3910:2013 refers to the contract administrator and the ‘Engineer’ to the contract Have changed wording to ‘contract administrator.

if the specific scope of the paper were set out early in the paper.

22 Part 4.7 Clarity above applies also to the statements at lines 379 and 392 where entitlement to a change in price is considered. This issue depends entirely on the Form and Terms of contract and without a statement of assumptions of the Form and Type of contract it is very difficult to make meaningful comment.

Changed to: SCENARIO: It is unlikely that the instructed detail could constitute something wholly outside the contract scope. NZS3910:2013 contains provisions for Variations including a change in type or quantity or materials (9.1), for Underground and above-ground utilities (5.13), and 9.5 Unforeseen physical conditions (9.5).

23 Reviewer's Conclusion This is an interesting paper but one which would greatly benefit from an express statement on the specific scope of the paper, the assumptions made on the Form of Contract, the type of contract and the applicable law. Without such a statement it is very difficult to make meaningful comment on law as this paper seeks to do.

Fair points. The paper has been edited for better clarity.

24 If the paper could address the clarity of intentions and scope and the drafting of legal issues above, the paper may be a useful addition to the journal but would be better included in the Management section in my view.

This paper certainly does fall somewhere between the Law and Management categories. Perhaps categorising under Management, may better attract the intended audience (PMs, architects, PQS). We leave the decision with the Editor.

Contractor submits claim for additonal costs to a

lump sum contract

Client instructed scope change?

Yes

No

Similar in general character to original

work? (Hudson's 3-074)

Express terms explicity allow claim, re-allocating risk from the implied

principle of absolute liability (Hudson's 3-074 - 75)

Yes

Claim refused. Contractor

responsible for design buildability

Yes

Is the contract frustrated? (Huddson's

1-072)

No

Contract obligations concluded. Contractor entitled

to quantum meruit for work after contract

Contractor's duty to warn fulfilled? (Hudson's 3-089

- 90) Yes

Claim refused. Contractor's claim valued as though they had warned

Contractor entitled to claim as per

contract

Work 'wholly different' to contract? (Hudson's

5-031)

Contractor may refuse or claim quantum meruit for

additonal work only (Hudson's 5-030- 032)

Yes

Contractor entitled to claim as per contract

No

No YesNo

No

Contractor claim flowchart

Table 1: Summary comparison of head contractor and CCM obligations

Obligation Head contractor Consultant manager

Construction Absolute liability and fitness for purpose. NZ Building Act stipulates reasonable standards of workmanship and fit for purpose materials for residential work.

Reasonable skill and care for planning and managing construction work on behalf of the client who employs trade packages directly. (Section 6.2)

Duty to warn Duty through tort to warn of design compliance issues or cost increases after providing a budget. (Section 5.4)

Test of foreseeability based on facts, and what any other reasonably competent similar contractor would have foreseen. (Section 5.4)

ECI may influence foreseeability threshold in terms of time afforded and ECI team composition. (Section 5.4)

Duty to warn of contractual risk and non-performance by team members, taking reasonable skill and care. (Section 6.3)

Procurement Absolute liability for procuring all necessary work (inclusive price principle). (Section 5.1)

Procure all works necessary without gaps, so far as not negligent. (Section 6.2)

Time Absolute liability.

Client can charge liquidated or general damages for late completion except for extension of time grounds permitted in the contract. (Section 5.1)

Client relies on consultant apportioning damages to applicable trade packages, or must demonstrate that damages are consequential of the consultant’s negligence. (Section 6.4)

Quality Absolute liability. Contractor responsible for remedying defects at their expense. (Section 5.1)

Contractor may request that instructed drawings will comply with the Building Code when building using reasonable levels of workmanship (Section 5.7)

Client relies on consultant apportioning remedial work to individual trade-packages, or must demonstrate the defects are consequential of the consultant’s. (Section 6.4)

Cost Held to fixed price, except for contractual compensation events, sufficiently different instructions, document ambiguities, or frustration. (Sections 5.1 – 5.5)

Reasonable skill and care when providing a budget. (Section 6.1). Must warn of cost increases. (Section 6.3)

Instructed drawing details

Contractor incurs absolute liability for instructions similar in nature. Contract administrator respond to claims for instructed drawings by enquiring what the contractor allowed within their fixed price to produce a fit for purpose product. (Section 5.1)

Contractor may claim variation costs for instructions sufficiently beyond the original scope. (Section 5.2)

Contractor may refuse instructions wholly different to the original scope or perform work outside contract rates (Section 5.2)

Contractor may claim cost difference for ambiguities in drawings under contra proferentem. (section 5.5), but not the

May enforce inclusive price principle to individual trade-packages, though does not adopt an overall absolute liability for connectivity like a head contractor. (Section 6.4)

Table Click here to access/download;Table;Table 1 Contractor vCMM.docx

cost for removing incorrect materials if they reasonably ought to have warned in advance (5.4 and NZS3910:2013, 5.21.1)

Obligation Head contractor Consultant manager

Construction Absolute liability and fitness for purpose. NZ Building Act stipulates reasonable standards of workmanship and fit for purpose materials for residential work.

Reasonable skill and care for planning and managing construction work on behalf of the client who employs trade packages directly. (Section 5.1)

Duty to warn Duty through tort to warn of design compliance issues or cost increases after providing a budget. (Section 4.3)

Test of foreseeability based on facts, and what any other reasonably competent similar contractor would have foreseen. (Section 4.3)

ECI may increase foreseeability threshold in terms of time afforded and ECI team composition. (Section 4.3)

Duty to warn of contractual risk and non-performance by team members, taking reasonable skill and care. (Section 5.1)

Procurement Absolute liability for procuring all necessary work (inclusive price principle). (Section 4.1)

Procure all works necessary without gaps, so far as not negligent. (Section 5.2)

Time Absolute liability.

Client can charge liquidated or general damages for late completion except for extension of time grounds permitted in the contract. (Section 4.1)

Client relies on consultant apportioning damages to applicable trade packages, or must demonstrate that damages are consequential of the consultant’s negligence. (Section 5.1)

Quality Absolute liability. Contractor responsible for remedying defects at their expense. (Section 4.1)

Contractor may have some defense where a defective finished building relied on exceptional levels of workmanship to comply with building code. (Section 4.2)

NZ Building Act limits workmanship to reasonable skill and care. (Section 4.2)

Client relies on consultant apportioning remedial work to individual trade-packages, or must demonstrate the defects are consequential of the consultant’s. (Section 5.1)

Cost Held to fixed price, except for contractual compensation events, sufficiently different instructions, document ambiguities, or frustration. (Sections 4.1, 4.4, 4.5, 4.6)

Reasonable skill and care when providing a budget. (Section 5.1). Must warn of cost increases. (Section 5.3)

Instructed drawing details

Contractor incurs absolute liability for instructions similar in nature. Engineer could ask contractor what they had allowed for to produce a fit for purpose product. (Section 4.1)

Contractor may claim variation costs for instructions sufficiently beyond the original scope. (Section 4.5)

May enforce inclusive price principle to individual trade-packages, though does not adopt an overall absolute liability for connectivity like a head contractor. (Section 5.1)

Contractor may refuse instruction wholly different to the original scope or perform work outside contract rates (Section 4.5)

Contractor responsible for design changes requested for buildability (variations for the contractor’s convenience). (Section 4.1)

Contractor may claim variations for inconsistencies in drawings under contra proferentum. (section 4.4)

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